A new Michigan case before the Supreme Court shows the fight against ethically dubious municipal tax foreclosure practices isn’t over yet. iStock illustration
For years, cities and towns across Massachusetts and the nation seized homes and properties for back taxes and then sold them off for hundreds of thousands of dollars, pocketing the gains.
In some cases, local officials would sell the tax lien on the home or condominium to an investor or developer, who would then foreclose on the property and sell it themselves.
The owners, often the elderly or young family members of a parent or grandparent who just died, would soon find themselves out of both a house and any gains from the sale of it.
It is the kind of thing you would typically associate with scammy mortgage lenders circa 2008, not local officials pledged to uphold the public interest.
And now, after years of battling in court and lobbying lawmakers, the Boston-based, free market-focused Pioneer Institute’s legal advocacy arm and progressive nonprofit Greater Boston Legal Services are closing in on their goal of stamping out the shady and incredibly unfair practice.
Local Lawyers Help Case
The Pioneer New England Legal Foundation, GBLS, and the law firm of Greenberg Traurig are weighing in on a pair of Michigan cases, filing an amicus brief with the U.S. Supreme Court.
In both cases, local officials have found loopholes and workarounds after that Michigan’s highest court ruled that home equity theft by local governments violated the state’s constitution.
The Michigan cases come in the wake of a landmark 2023 ruling by the nation’s highest court that found that government entities can’t take more than what is actually owed in back taxes when selling or home or other property.
Last year, Pioneer’s legal foundation and GBLS won a major court victory in Massachusetts as well.
In Mills v. City of Springfield, a state court issued a ruling that echoed the Supreme Court, striking down the state’s tax lien law as unconstitutional.
In that case, Springfield officials had attempted to seize and sell 21-year-old Ashley Mills’s $230,000 home when she was unable to fork over $1,636.70 in real estate taxes.
Mass. Law a ‘Model’ for Others
Following up on that court decision, Bay State lawmakers passed a bill that restricted both local governments and private investors and other entities from taking more money from the sale of a foreclosed property that was owed in back taxes.
In fact, the Massachusetts law has become a “model” for other states contemplating similar legislation, said Frank Bailey, president of Pioneer New England Legal Foundation.
Before the court ruling and legislation, cities like Worcester were selling dozens of homes each year for back taxes, and making millions in the process.
“We are pretty committed to this,” Bailey said. “I haven’t talked to anyone who wasn’t connected to a municipality who thought it was fair.”
But while great strides have been made in stopping the predatory practice, the new case in Michigan highlights the need for continued work on the issue, including efforts to close loopholes that some local officials are now taking advantage of.
On the plus side, cities and towns in Michigan are now required to turn over the gains, or equity, from sales of homes foreclosed on for tax issues.
Scott Van Voorhis
Some Communities Pushing Back
But in response, some communities have passed all sorts of rules to make it difficult, if not impossible for erstwhile homeowners to collect what they are owed after the sale of their properties.
These include giving people just a few days to come forward and collect the proceeds from the sale of their home, and putting in other arcane requirements as well.
And by arcane, I mean really arcane, as in one of the Michigan community’s requirements that she make her claim through the U.S. Postal Service using certified mail.
Even though she met a rather strict deadline, her claim was thrown out because she had sent it via FedEx.
“She lost the family’s wealth simply by using the wrong method of mail,” Bailey said. “That’s not justice.”
Given the ingenuity shown by local officials, you can be sure that Bailey and Pioneer, not to mention Greater Boston Legal Services, will be keeping a sharp eye out for other such attempts, both local and across the country.
In Rhode Island, for example, local officials aren’t required to pay out the proceeds from a home sale if the city or town transfers it to another municipal entity.
“Our concern about this is that if the camel gets its nose under the tent, it will encourage other loopholes to develop,” Bailey said.
Given the history here, that sounds more than reasonable.
Scott Van Voorhis is Banker & Tradesman’s columnist and publisher of the Contrarian Boston newsletter; opinions expressed are his own. He may be reached at sbvanvoorhis@hotmail.com.
